Out of the Depths, Part IX: Production is the Key

Admirers of and apologists for Prince Otto Leopold von Bismarck-Schönhausen have a hard time dealing with the Franco-Prussian War. Either the subject is completely ignored, or it is passed over so briefly as to make the reader think that nothing much of any importance happened. (Vide Erich Eyck, Bismarck and the German Empire. New York: W. W. Norton, 1958; A. J. P Taylor, Bismarck: The Man and the Statesman. New York: Viking, 1967.) Formerly secret documents declassified in 1957 make it painfully clear that the soon-to-be Chancellor of the Reich shamelessly manipulated people and events, even his own future emperor, to provoke a war with France. (Eyck, op. cit., 186.) Similarly, the Commune and its rule of the city in the wake of the Siege of Paris has been sanitized and reinterpreted to fit whatever political theory suits whoever happens to be in power at the moment.

Our concern, however, is not with the war itself, nor the Paris Commune, but with the indemnity Prussia imposed on France. The Franco-Prussian War officially ended on May 10, 1871 with the signing of the Treaty of Frankfurt. War had raged for five months. It had cost an estimated quarter of a million lives, Prussian and French. The question was now the indemnity France was to pay for having lost the war so artfully arranged by Bismarck.

Billion Dollar Indemnity

Bismarck's first demand was for 6 billion Francs. When the French threatened to walk away from the table, he immediately lowered it to 5 billion, or just short of $1 billion in terms of United States dollars at the then-current rate of exchange. Biographers and historians ever since have stated that this clearly indicated that Bismarck was fully aware that he was making an outrageous demand, and did not expect to get immediate agreement. Perhaps, but it is highly unlikely that the German Chancellor would have turned down the additional billion had the French agreed to pay.

In any event, from Bismarck's perspective there was little chance that France would be able to pay an indemnity of any amount. This appears to be, in fact, what he was counting on to ensure that the new German Empire-in-formation would be the most powerful nation in Europe.

Bismarck, however, failed to take two things into account. One, people have a natural tendency to side with the underdog. When Bismarck tricked France into the war, the Second Empire was decidedly unpopular in Europe and elsewhere. Those friends France did have were all-but powerless. Austria-Hungary had been humiliated in the Six Weeks War barely five years before and was seen as completely ineffectual. The Poles in the Prussian portion of occupied Poland, while vocal in support of the French, were confined to verbal barrages — for which they later paid a heavy price.

Allies in the southern German states on whom France had counted turned out to have entered into secret treaties to support Prussia. This was the case with Bavaria, Baden, and Württemberg. In addition to the treaties, these states also bowed to public opinion, stirred by Bismarck and resurgent German nationalism into a white heat against their Catholic ally. Groups such as the Young Germany Movement, which was also responsible for the artistic atrocity of the Teutoburgerwald Monument — the bombastic and mis-proportioned Hermansdenkmal — had nurtured support for Prussia. This would ultimately work to their disadvantage once the new Empire was secure and Bismarck initiated the anti-Catholic Kulturkampf. Bismarck also implemented a program of imposing Hochdeutsch, the Prussian dialect of German, and other aspects of Prussian culture on the southern states in an effort to inflict his personal vision of what it means to be German on everyone.

Still, when the tide of war obviously turned against France, public feeling started to go against Prussia, now seen as an international bully. When war was declared, a large number of Italians had volunteered for the Prussian Army, and a Prussian diplomat paid a visit to Garibaldi in Caprera. After the Battle of Sedan, Bismarck's obvious opportunism and escalating demands, such as for the return of the province of Alsace, disgusted former sympathizers. Even though Garibaldi viewed France, with its thwarting of his attempted takeover of the Papal States, as an enemy, he immediately issued a statement to his Red Shirts that, "Yesterday I said, 'war to the death to Bonaparte.' Today I say, 'rescue the French Republic by every means'."

Consequently, when the war was over, sympathy for France was at an all-time high. French goods, especially wine and wool, began to be in very great demand everywhere. This was especially the case in the United States. The rising "Robber Barons" of the industrial and merchant classes, newly enriched by the American Civil War, badly needed to show off their sophistication, particularly with imported French wine, silk, cheese, and other luxury goods. If France could produce it, France could sell it to a very willing world market.

This brings in the other thing Bismarck had evidently not counted on: Louis Pasteur, a French chemist, at this time renowned as one of the leading scientific minds in the world. Thomas Huxley was later to declare that the monetary value of Pasteur's discoveries was sufficient to cover the entire cost of the indemnity paid to Prussia.

The Power of Science

Pasteur's discoveries — at least those with a direct bearing on this series — began with a way to treat wine to prevent it from becoming sour. In 1862 Pasteur realized that the application of heat would kill the microorganisms that caused the problem. In his honor the process is called pasteurization. It has been widely applied to other liquids, notably milk. An interesting "might-have-been" in history is that a few years previously Gail Borden, Jr., seeking a way to make milk safe for more than a few hours, invented a vacuum pan that would allow him to heat milk without scorching it in order to "condense" the liquid and can it. In a sense, Borden could be said to have invented pasteurization before Pasteur.

Soon after Pasteur's discovery saved the French wine industry, it was discovered that some unknown disease was destroying the French silk industry. A friend — an unverified source claims it was the novelist Alexander Dumas — urged Pasteur to look into the problem. At first reluctant (he had never so much as seen a silkworm) he went to the south of France in the summer of 1865. By September he announced that he had found a cure.

If we understand the description correctly, the process Pasteur perfected involves first isolating the cause of the disease. The researcher then grows the organism under laboratory conditions. He or she then introduces factors that weaken the organism artificially so that, while it can no longer cause the disease, it can still stimulate the body to produce a defense against it — which defense is fully effective against the organism at full strength. This was an improvement on Edward Jenner's technique, which required that a naturally weak strain of the disease be located. In the case of smallpox, the weaker strain was the less virulent cowpox. (If this description is incorrect, it is entirely due to this author's misunderstanding of Pasteur's technique.)

It's a tossup as to who was more delighted: Pasteur, or the multitudes dependent on the silk industry for their livelihood. As he said, "There is no greater charm for the investigator than to make new discoveries; but his pleasure is heightened when he sees that they have a direct application to practical life."

Nor was the silk industry the only one to benefit from Pasteur's discovery. After finding a cure for the disease that was attacking the silkworms, Pasteur turned his attention to chicken cholera. This disease was decimating — literally — French poultry, being responsible for wiping out one in ten of the flocks. After the administration of Pasteur's treatment, the death rate was reduced by more than 90%.

After cholera came anthrax, a disease that was devastating sheep and cattle all through France. Having been ridiculed by the French Academy of Medicine, Pasteur took himself to the district of Arbois in eastern France. There he spent a decade investigating the causes of anthrax and, almost miraculously, developed an effective vaccine, which he distributed to the farmers in Arbois.

In recent years there seems to have been a movement to have Pasteur declared a fraud and a scientific cheat because a close study of his notes allegedly reveals that his method of isolating the anthrax bacillus did not produce the strain from which he created the vaccine. The bottom line, however, is that, whatever method was used to produce the strain from which Pasteur developed the vaccine, the unquestioned fact remains that Pasteur developed the vaccine. The flocks were saved.

Desperate for new sources of revenue to meet the 5 billion Franc indemnity, the government sent investigators to Arbois to find out why the sheep in that district were healthy when all across France sheep and cattle were dying in droves. Pasteur informed the committee of his discoveries, and was once again attacked and ridiculed as both a knave and a fool. Only after it was proved beyond a shadow of a doubt that the vaccine worked was it distributed throughout France and, later, the world — reducing the death rate from anthrax to under 1%.

Production is the Key

The upshot of Pasteur's discoveries was that France was able to produce the vast quantities of goods and services needed in order to generate the cash required to meet the indemnity payments. This was a graphic demonstration of Say's Law of Markets. Say's Law is a common sense observation that production equals income. Consequently, demand generates its own supply, and supply its own demand. As Jean-Baptiste Say explained the matter to the Reverend Thomas Malthus,

Since the time of Adam Smith, political economists have agreed that we do not in reality buy the objects we consume, with the money or circulating coin which we pay for them. We must in the first place have bought this money itself by the sale of productions of our own. To the proprietor of the mines whence this money is obtained, it is a production with which he purchases such commodities as he may have occasion for: to all those into whose hands this money afterwards passes, it is only the price of the productions which they have themselves created by means of their lands, capital, or industry. In selling these, they exchange first their productions for money; and they afterwards exchange this money for objects of consumption. It is then in strict reality with their productions that they make their purchases; it is impossible for them to buy any articles whatever to a greater amount than that which they have produced either by themselves, or by means of their capitals and lands. (Jean-Baptiste Say, Letters to Mr. Malthus on Several Subjects of Political Economy and on the Cause of the Stagnation of Commerce. London: Sherwood, Neely & Jones, 1821, 2.)

Not only was the indemnity, obviously intended to cripple France forever, paid in full, it was paid off ahead of schedule. Bismarck was evidently unaware that as long as a country can produce marketable goods and services, there is no need to use existing accumulations of savings for anything except consumption. A financial and economic reactionary (and a political progressive only when it suited him), Bismarck evidently looked only at France's existing accumulations of savings, not at French productive capacity in setting the amount of the indemnity. This appears to be the same mistake made by world leaders today, and their incomprehensible reliance on Keynesian deficit spending to bring about what only increased production can accomplish.

In this, the German Chancellor outsmarted himself, something that many of today's politicians and policymakers have acquired the habit of doing. Bismarck succeeded in laying the foundation of long-term enmity between France and Germany, as well as giving cause for lasting resentment for the 5 billion Francs shipped to Berlin, mostly in silver.

The Slavery of Savings

In Bismarck's relying on silver we find another instance of his being a little too clever for his own good. He was evidently convinced that gold and silver were "real money." Consequently, he — in common with today's academic economists and policymakers — seems to have believed that draining so much financial capital out of France would permanently cripple French industry and economic development.

This was a serious mistake. The price of silver was dropping rapidly at this time. Not only was production booming, the British had finally given up trying to finance the economic development of India by massive purchases of silver, sometimes more than annual world production. (Karl Helfferich, Money. New York: The Adelphi Company, 1927, 134.) World markets were glutted with a virtual tsunami of silver. This made it much easier for France to purchase silver on the world market cheaply — and ship it to Germany after minting it into Five Franc pieces at the agreed-upon standard. The massive influx of silver undermined the stability of the German states' currencies, most of which were based on silver, as they had been for nearly 2,000 years. When he put through the monetary reform for the new Reich, Bismarck found himself forced on to the gold standard, or he would have had to deal with serious inflation as the price of silver plunged. In real terms, the indemnity France paid may have been as low as two-thirds to a half of its nominal value, or even lower.

The key to understanding Bismarck's mistake is that he clearly didn't realize that existing accumulations of savings are not generally used to finance capital formation directly. Instead, savings (which necessarily equals investment) most commonly serve as collateral for the extension of bank credit. Just as good as collateral — even better, actually — is a market where people are (in effect) standing in line to purchase everything you can produce. You do not need existing assets — savings — in order to borrow from the bank. All you need is a solid contract with someone ready, willing, and eager to buy your good or service. With the high demand for French products at this time, especially wine, wool, and silk, the French had all they needed to generate sufficient cash to pay the indemnity without liquidating existing investment or inhibiting future economic growth.

Ironically, the Iron Chancellor may have done France a favor by imposing the indemnity. The French economy was in ruins as a result of the war. By creating an incentive to rebuild the French economy as fast as possible, Bismarck laid the foundation for what many people still today believe to have been the highpoint of French culture and civilization. He didn't get any thanks for it (nor did he deserve any), but Bismarck was unable to prevent the good that resulted from his evil.

Lessons for Today

Modern politicians as well as academic economists and policymakers can learn a great deal from France's experiences — both good and bad. Most obvious, of course, is for them to realize that the State cannot simply continue to create money for government spending, to bailout failed companies, or increase consumer spending (and thus government and consumer debt). Instead, the only safe and sound method of money creation is to back all new money with a private property claim on the present value of existing and future marketable goods and services, not government debt backed by possibly ephemeral tax collections.

Perhaps a more valuable lesson to learn, however (due to its immediacy), is that you cannot get out of a hole by digging it deeper. France did not pay off the Prussian indemnity by printing money and increasing the national debt — inflating and depreciating itself out of the hole it was in. In all likelihood, that would simply have caused another war with Germany when the Second Reich attempted to collect on the depreciated paper.

Instead, the French began to produce marketable goods and services at a tremendous rate in order to generate income with which to pay off the indemnity. They did not redistribute an existing pool of wealth through deflation and devaluation. In this, they took the advice of Harold Moulton more than half a century before he gave it:

Production and employment are basic and ultimate points of reference in modern industrial life. Depression, like prosperity, is a phenomenon which is significant primarily in these terms, and no understanding of the factors of recovery may be gained without a thorough consideration of these two elements of economic activity. (Harold G. Moulton, The Recovery Problem in the United States. Washington, DC: The Brookings Institution, 1936, 114.)

From that perspective, today's economic crisis is actually an opportunity. If our politicians and policymakers continue on their present path, of course, the situation will only get worse. If, however, they stop throwing good money after bad and start fostering production instead of speculation and gambling and relying on redistribution of existing wealth to meet people's needs, we can expect to see a phenomenal turnaround in the world's economy. The only question is, what program would be most effective in fostering production, stabilizing the currency, and increasing and sustaining consumer demand?

The Just Third Way and Capital Homesteading

The principles of the Just Third Way, distilled from the binary economics of Louis Kelso and Mortimer Adler combined with the act of social justice as analyzed by William Ferree in a synergistic program called Capital Homesteading for Every Citizen would seem to fit the bill. To the three principles of economic justice we noted at the beginning of this series we add the four pillars of an economically just society:

• A limited economic role for the State,

• Free and open markets as the best means of determining just wages, just prices, and just profits,

• Restoration of the rights of private property, especially in corporate equity, and (the "fatal omission" in all the major schools of economic thought),

• Widespread direct ownership of the means of production, individually or in free association with others.

Capital Homesteading is a Just Third Way comprehensive national economic strategy for empowering every American citizen, including the poorest of the poor, with the means to acquire, control and enjoy the fruits of productive corporate assets. It is not sufficient simply to foster production — it must be production in which everyone can participate as owners of both labor and capital.

Naturally we cannot give even an adequate summary of the proposal here. As it relates to the issues covered in this series, however, Capital Homesteading involves major restructuring of the tax system and central bank policies to lift unjust artificial barriers to more equitable distribution of future corporate capital and faster growth rates of private sector investment. The result would be to shift primary national income maintenance policies from inflationary wage and unproductive income redistribution expedients, to market-based ownership sharing and dividend incomes.

The central bank would distinguish between "sound" and "unsound" uses of credit naturally, through the structuring of the system itself. The central bank would provide interest-free (but not "cost-free") reserves by rediscounting eligible loans extended by commercial banks. One of the eligibility requirements for rediscounting would be that the loans are made in such a way as to enable every American to become an owner of a viable accumulation of new income-producing assets. This would reduce America's dependency on existing accumulations of savings, corporate retained earnings, or foreign government wealth funds advantaged by America's growing trade imbalances.

Thus, the central bank would supply sufficient money and credit through local banks to meet the liquidity and broadened ownership needs of an expanding market-disciplined economy. Loans, of course, would be subject to appropriate feasibility standards administered by the banks, and limited only by the goal of maintaining a stable value for the currency. Unsound uses of credit, such as the speculative credit that created sub-prime home mortgages and the global financial meltdown, would be financed from the accumulations of the wealthy who can afford the risks.

To ensure adequate oversight of the system, each citizen would receive a single, lifetime, non-transferable voting share in the central bank. This would ensure that the directors and administrators of the system are broadly representative of all groups affected by central bank policy, and that power over future money creation is spread widely among all citizens.

Capital Homesteading's central focus is the democratization of capital (productive) credit. By universalizing citizen access to direct capital ownership through access to interest-free (but not cost-free) productive credit, it would close the power and opportunity gap between today's haves and have-nots, without taking away property from today's owners.

There is much more, of course, but the lesson is clear. There is only one way to get out from under the colossal burden of debt faced by the United States and the rest of the world: produce — and produce in a way in which everyone shares in the process both through ownership of labor and ownership of capital. You can't redistribute by printing money forever. At some point the bill comes due. Devaluing the currency is not going to make the problem go away. The United States not only should, but must adopt Capital Homesteading for every citizen as soon as possible.

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Out of the Depths, Part VIII: The Man of Destiny

As general, then First Consul for Life and, finally, Emperor, Napoleon Bonaparte accomplished amazing things. He restored order to society, codified the laws of France, sponsored scientific research and brought back an economy left in shambles by the Revolution. The best example of this is his complete reform of the monetary system in 1803 — L'An 11 of the Revolution — putting the currency on a sound basis for the first time since 1790.

Money as a Weapon

Naturally, being Napoleon, reform of the currency was not done for civic or altruistic reasons. Everything the Man of Destiny did was geared toward furthering his aim of extending the Empire. Just as Alexander the Great realized that he needed a secure base of supply and adequate financial backing before conquering the world, Napoleon knew that he could do nothing with France in the financial condition it had been left by the forces of Revolution.

Money as well as a sound society and technological advances were only additional weapons of war to the Corsican. For example, he had offered an enormous prize to anyone who could come up with a new way to preserve food — for the army, of course. "An army travels on its stomach" is a well-known Napoleonic aphorism. That was how "canning" was developed. Both the name of the container and the verb, "can," are short for "canister," a type of ammunition, from the food container's resemblance to the cannon load.

More than most political figures, Napoleon's career is shown on his coinage. We can trace his rise from one of three Consuls (1799-1802), to "First Consul for Life" (1802-1804), to Emperor of the French Res Publica (1804-1806), and then to the pinnacle of his career as Chief of State of the Empire (1806-1814). Finally, we see his triumphant if brief return during the "Hundred Days" in 1815. Every step of the way we see conscious parallels with ancient Rome, down to the attempt to make Paris a worthy fifth successor to the Eternal City through his monumental building program. In his anxiety to establish the French Res Publica as the only legitimate restoration of the old empire, Napoleon even formally abolished the Holy Roman Empire founded by Charlemagne.

Charlemagne had taken the regnum — the rule — of the west from Byzantium by restoring a specifically western empire. Now Napoleon proposed to shift the regnum of Europe from the Germans back to the Franks, whom he considered the legitimate heirs of Charlemagne and, through him, the imperium of Rome, now to be attached to the French Res Publica. The only thing Napoleon succeeded in doing, however, was to destroy the last formal remnants of the concept of a socially and culturally integrated Europe, albeit divided politically in local matters, and ensure the dominance of the Nation State idea for political sovereignty.

This alienated each political division from all the others, creating the belief that individual survival depended on the maintenance of an impersonal and absolute sovereignty for whatever current political arrangement under which an individual lived. The medieval idea of the sovereignty of the individual was overthrown in favor of the idea of absolute State sovereignty. Lost was the ancient pagan and medieval Christian idea that people give a grant of power to the State in order to allow the State to carry out its function and so that people can live with each other in accordance with their nature.

Humanity's basic nature was now considered anarchical rather than social. This was through the influence of Voltaire, Rousseau, and various thinkers of the Enlightenment. The State was viewed as an enemy rather than a tool. Under the "State is a Tool" concept, the specific form doesn't matter, as long as the substance remains: protection and security for individual rights and the sovereignty of the human person. Under the "State is an Enemy" orientation, the substance is gone and the form is all that matters, which, paradoxically, transforms into the notion that the State is your only friend and must hold all power.

These ideas, although not explicitly stated, drove Napoleon's domestic and foreign monetary and fiscal policy. The restoration of the French regnum through the creation of the Res Publica and the transfer to it of the Roman imperium absolutely required a sound currency. This was both to secure the base of operations on a firm financial footing, and to finance the extension of the imperium to all parts of Europe, and then to Asia and North Africa as the Empire was completely restored.

Bonaparte's Advance

The only consistent coinage program of the Revolution had been to ensure that a crown-sized silver coin was minted regularly. Under the old monetary system, the Ecu of Six Livres had been the workhorse of the economy. The new Five Francs took over this role after the monetary reform. As William Jennings Bryan was to demonstrate in his populist "Free Silver" campaign in the United States in the 1890s, a large silver coin had an important symbolic value and role in demonstrating the presumed soundness of the currency and the continuance of normal economic life. In view of the ubiquitous assignats and the hideous inflation they caused, however, it is doubtful that anyone was fooled.

The Five Francs, however, was minted with regularity from L'An 4 through L'An 11 with the "Hercules" obverse, replacing the Ecu with "Genius Writing in the Book of the Law" obverse, which had been struck until L'An 2. This specifically Republican issue was replaced in L'An 11 (approximately 1803) with a coin bearing the effigy of Napoleon as First Consul. Bonaparte had seized power in 1799, but had been too busy with a multitude of other projects (such as securing his position) to get around to the critically needed monetary reform.

When he did get around to it, Napoleon, like his Republican predecessors, ignored small change. Although a completely new coinage was instituted in 1803, the lowest denomination was the silver Quart — One-Fourth of a Franc — and it was a full year after the new coinage began that this was struck in 1804.

This inaugural coinage of Napoleon as Consul for Life consisted in the initial year of the Demi-Franc (1/2), the Franc, the symbolically and economically important Five Francs, and the first gold coinage in France in ten years. This consisted of the coin that was to bear the name of "Napoleon," the 20 Francs, as well as a 40 Francs.

In 1804 the Quart was added, as noted above, and also a Two Franc piece. All coins were to the metric standard, established early in the Revolution but which the authorities had never quite gotten around to implementing in full. The Franc-based currency was strictly "scientific." The basic coin was the Five Franc piece, weighing exactly 25 grams, and containing precisely 22-1/2 grams of pure silver (.7234 of an unscientific Troy ounce). The original fineness was .900. The Franc was divided into a scientific 100 "Centimes" or "Hundredths."

All coins were to conform absolutely to these standards. The Quart, therefore, weighed exactly 1.250 grams and contained exactly 1.125 grams of silver. The Demi, of course, was 2.500 grams total weight with 2.250 grams of silver, while the Franc and the Two Francs weighed 5.000 and 10.000 grams, with 4.500 and 9.000 grams of silver, respectively.

The desire for a strictly scientific currency broke down, however, when gold was included. Due to the necessity of acknowledging the laws of supply and demand and their effect on a bimetallic system, the 20 Francs contained .1867 of a Troy ounce of pure gold, while the 40 Francs weighed in at .3734 ounces. The effect was the establishment of a silver currency subsidiary to gold, although it remained officially bimetallic, and the predominant currency for domestic commerce was, indeed, the silver Five Francs.

All coins bear a portrait of Napoleon facing right, surrounded with the legend, BONAPARTE PREMIER CONSUL. The reverses are all nearly identical, showing the denomination inside a wreath surrounded by REPUBLIQUE FRANÇAISE and the date according to the Revolutionary calendar. This issue was minted for only two years, L'An 11 and L'An 12, or approximately 1803 and 1804 of the abolished Christian calendar.

This "First Consul" coinage lasted barely two years. It was replaced with an explicitly imperial coinage for the Republic when Napoleon proclaimed himself Emperor. The coins in this series constitute a full coinage of all the denominations from the previous issue, but still do not include any minor coins under a Quarter Franc in value. The essential change was the transformation of Bonaparte from "First Consul" to "Emperor," the legend now reading NAPOLEON EMPEREUR. The reverse was left unchanged, and dates continued to be given in the Revolutionary calendar. This issue was minted from L'An 12 through L'An 14, 1804 to 1806.

Another issue was introduced in 1806. The major change was a switch from dates in the Revolutionary calendar back to the Christian calendar. This was possibly an attempt to garner the favor of the papacy and the still predominantly Catholic population. This issue, too, lasted barely two years before the decision was again made to redesign.

There was an apparently too-hasty adoption of a new effigy of Napoleon in 1807 and employed on the Quart, Demi, One, and Two Francs. This was the so-called "Negro Head" image, which was rapidly withdrawn.

This misadventure in portraiture was replaced in the latter part of 1807 with a "Laureate Head" of Napoleon, meaning that the effigy now bore a laurel wreath in the style of the ancient Roman emperors. The other innovation was to strike, for the first and last time until the mid-century imperial coinage of Napoleon III (who in this one instance was able to surpass his uncle), minor coinage of less than a Quarter Franc in value. This consisted of a copper Five Centimes and a billon 10 Centimes, which probably served to replace both the earlier Republican issues of the same denominations, and the old regal Sous and Two Sous. Due to the critical need for small change, these had remained in circulation long after their official demonetization. The Five Centimes was struck only in 1808. The designs for both are similar: a crowned "N" on the obverse surrounded with a wreath, with the denomination, date and legend, NAPOLEON EMPEREUR, on the reverse.

The Laureate Head issue was struck through 1808. It was replaced in 1809 with a final Napoleonic issue. The change was to replace REPUBLIQUE FRANÇAISE with EMPIRE FRANÇAISE. As this issue was struck from 1809 through 1814, these are the most common Napoleonic coins. They are consequently very reasonably priced, running about half the prices of common dates in the prior issues, except for the gold Napoleon, which usually responds directly to changes in the price of bullion. This issue was briefly continued in 1815 after Napoleon's return from Elba during "The Hundred Days," but limited in scope to the Two, Five and 20 Francs.

"I Care Not Who Makes the Laws"

In contrast to the over-abundance of paper money during the Revolution, domestic issues during Napoleon's tenure were extremely limited. They were restricted to the higher denominations and may have been intended solely for financial transactions for which gold and silver would have been too cumbersome.

As we noted previously, after the debacle with the assignats, the business community in France established three banks. These were the Caisse des Comptes Courants for bankers, the Caisse d' Escompte du Commerce for businessmen, and the Comptoir Commercial for retailers. Soon after the Eighteenth Brumaire (November 9, 1799) and the coup d'état in which Napoleon seized power, Napoleon consolidated the private banks and put them under the control of the State. (Conant, op. cit., 44-45.)

This policy is in sharp contrast to the way in which Napoleon used currency to destroy the economies of his enemies. Rothschild is alleged to have said to the Emperor, "Give me control over money and credit, and I care not who makes the laws." (Frederick Merton, The Rothschilds, A Family Portrait, New York: Atheneum, 1962.) Whether or not Rothschild actually did say this, the fact of the matter is that Napoleon both made the laws and maintained strict control over money and credit. He also understood how to use these uniquely social goods to the discomfiture of any who opposed him.

Napoleon's monetary and fiscal policy is generally treated one of three ways by many historians and analysts. The first way, except to note that he did, indeed, reform the currency, is to ignore the whole thing. The second is to declare that, since he was financed in part by the House of Rothschild, he was a "tool" of "International Bankers" (the current euphemism which the cognoscenti instantly recognize as meaning "The Jews") who were bent on world conquest and were using Napoleon as a dupe to advance their plans. The third way is to assert that, since he was the Man of Destiny and Savior of Europe, he was fighting an England and Europe in thrall to and controlled by "International Bankers" arrayed in a centuries-old conspiracy to enslave the human race.

Studying Napoleon's coinage and monetary policy, however, we realize that the Emperor was not enslaved to anyone, nor was he the type to be duped. The Man of Destiny looked on money and credit as very useful and very effective weapons of war. There was no question of Napoleon either manipulating or being manipulated by "The Conspiracy," or of treating coin and currency as incidental to his main program. Nowhere is this illustrated more graphically than in the steps he took to destroy the Austrian currency.

A Financial Fifth Column

Where the French had generally misused the mechanism of paper money, the Austrians made a more careful use of it than was usual at the time to reinforce the soundness of the economy. While this resulted in a measure of inflation, almost inevitable in a traditionally structured economy based primarily on metallic currency, it also gave them the ability to wage effective war against the Corsican upstart. Accurately pinpointing the source of his troubles, Napoleon set out to destroy the Austrian economy and thus the Eastern Empire's ability to resist him. In a letter to Champagny, a government minister, on September 6, 1809, Napoleon outlined his program of economic subversion, perhaps inspired by the counterfeiting operation carried out by the British against the colonists during the American Revolution.

Maret [Joachim Murat, husband to Napoleon's sister Caroline, who had been installed as "King of Naples" after the ouster of Ferdinando IV] will send you a collection of all the different kinds of [Austrian] bank-notes. Enclosed you will find an order on the subject. I desire you will manufacture these notes, of every amount, until you have reached 100,000,000. You must set up machinery which will turn out 10,000,000 a month. It was paper currency which enabled Austria to make war against me and with paper money she may be able to do it again.

That being so, it is my policy, both in peace and war, to destroy that paper currency and to force Austria to come back to the metallic currency which, by its very nature, will force her to reduce her army and all that wild expenditure on her part which has threatened the safety of my dominions. It is my intention that this operation shall be carried out secretly and mysteriously. Yet the object I set before me is far more a political one, than any advantageous speculation or gain. The subject is exceedingly important. There is no hope of peace in Europe so long as the House of Austria can obtain advances of 300,000,000 francs or 400,000,000 francs on the credit of its paper money.

Send a shrewd, intelligent agent who will come while we are here and collect all the information necessary to give this affair the scope I desire it to have and which will cause it to have so great an influence. (J. M. Thompson, ed., Napoleon's Letters. London: Prion, 1998, 214-215.)

Austria had employed paper currency for some time, but it was not until the wars with France as a result of the Revolution and Napoleon's subsequent career of conquest that issues became common — and inflationary, as they were backed by state debt instead of financially feasible projects. Notes were denominated as Five, 10, 25, 50, 100, 500 and 1,000 Gulden (Florins). The notes carry the promise that they are payable at the Vienna State Bank, and carry the denomination written out and in numerals. They also bear the usual promises and certifications of paper money.

Napoleon's forgeries copied the originals closely, although they were, for some reason, often printed on blue paper instead of the more common white. The counterfeits are so common that they are valued about the same as authentic notes, giving additional evidence of the enormous quantities needed to finance the wars and counterfeited by Napoleon as a weapon of war.

The authentic notes Napoleon chose to counterfeit in 1809 were issued under a decree of January 1, 1800, even though there was a later issue under a decree of June 1, 1806. These later notes are somewhat more elaborate than the earlier issue, which may account for the fact that the simpler notes were chosen to falsify. On the other hand, a far more clever motive might be that the older notes might not be subject to the same close scrutiny as a newer note, and any discrepancies might be written off with a shrug as belonging to an "obsolete" note issue.

Of course, the whole discussion may be moot: perhaps the French agents had simply forwarded the first complete and consistent set of currency they managed to collect out of circulation, which happened to consist of older notes. The newer 100 and 500 Gulden notes, for example, have a substantially different "look" than the smaller denomination notes in addition to being oriented horizontally instead of vertically. The newer series also did not include a 1,000 Gulden note and, when counterfeiting, the tendency is to get more bang for the bogus buck.

Possibly due to the prevalence of counterfeits, another series was issued under a decree of March 1, 1811, the year of the national bankruptcy, all in notes of 100 Gulden or less. These were not banknotes drawn on the Vienna State Bank, but demand notes issued by Die Privilegirte Vereinigte Einlösungs und Tilgungs Deputation. Barely two years later, under a decree of April 14, 1813, a series of "Anticipation" notes was issued, that is, the government borrowed money from the public in anticipation of tax collections. These were issued in denominations of Two, Five, 10 and 20 Gulden. Clearly Napoleon had succeeded in disrupting the Austrian economy to a significant degree.

Austrian Aftereffects

Austria's economy was to suffer the effects of Napoleon's financial warfare for decades. One of the most onerous tasks faced by Prince Metternich and his great rival, Count Anton Kolowrat-Liebsteinsky, was to restore Austria's good name in monetary and fiscal matters. The biggest bone of contention between the two was the Count's attempts to reduce military expenditures in opposition to Metternich's "forest of bayonets" policy.

Austria declared bankruptcy in 1811. This no doubt warmed the cockles of Napoleon's heart, giving concrete evidence of the success of his strategy. The full effects of his efforts were, ironically, being felt at the same time he married the Austrian Archduchess Marie Louise, cementing an alliance of sorts with the Habsburgs — the "House of Austria." Even after bankruptcy, however, further enormous debts were run up from 1813 and 1815, further crippling the ability of the government to make good on its promises.

From 1815 to 1848, the annual interest on the State debt amounted to nearly a third of total revenues, and the army's budget to another quarter of national revenues. Even so, Austrian military capability chronically lagged behind the rest of Europe. This ensured the rise of Prussia to the leadership of the German states and the formation of the Second Reich.

The ultimate fruit of Napoleon's success was the rise of the chauvinistic Nation State as the predominate political arrangement, the ruin of the later Napoleon and France herself in the Franco-Prussian War, and thus World War I. This led directly into World War II and the totalitarian conquest of much of Europe and Asia. Napoleon did indeed redraw the map of Europe, but not in any way he intended, nor with ordinary weapons of war. His most effective weapon, ultimately, was to manipulate money and credit, and thus the economy, of the pivotal country in Europe, rendering it helpless against the rise of a new Europe which had no place for the old values.

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Out of the Depths, Part VII: Le Armée Catholique et Royale

Accepted mythology about the French Revolution is that the people were oppressed to such an extent that, finally, they could no longer take it and rose up against the tyrant, or "Veto" as Louis XVI was called. The problem with such popular mythology is that, while it may be rooted in fact, it manages to give exactly the wrong idea of what happened.

Contrary to popular belief, the French Revolution was not a popular uprising. The image of bloodthirsty peasants rounding up and executing the detested "Aristos" (except for those rescued by the Scarlet Pimpernel or Sidney Carton) is extraordinarily misleading, to say the least. Most people guillotined during the Terror were ordinary people, some executed for nothing more than "insufficient revolutionary fervor."

The Unreactionary Reaction

Nowhere was this character of the Revolution more apparent than in the Bocage ("the Hedges"), the area known as the Vendée in the former Duchy of Normandy. Contrary to the accepted idea of conditions before the Revolution, there were no extremes of either wealth or poverty. The condition of the region was such that most peasants and nobles could gain a comfortable income through reasonable effort. Great fortunes, however, are not built up from modest agricultural holdings, nor is poverty as endemic in a rural setting as it would be in a metropolitan center such as Paris. In the country, people generally look after their neighbors themselves, while city dwellers are more comfortable leaving responsibility (and power) in the hands of the State.

Contradicting the usual stereotype that the city dweller builds up of his country cousins, the peasants and other inhabitants of the Bocage were not illiterate dirt grubbers. Literacy was higher than in many other parts of France, but people preferred the old classics to the new ideas of Voltaire and Rousseau. The ideas of these "Philosophers of the Revolution" tended to appeal more to the genuinely oppressed or, more usually, those with a little power who wanted more — the two groups that made up the solid core of the Revolution. The relatively equitable distribution of wealth in the Bocage meant a more stable and democratic society, as well as a basic contentment with the existing order.

By March 3, 1793, the Revolutionary government had revealed itself as completely antithetical to everything that meant peace and prosperity to the Vendeans. The Civil Constitution of the Clergy had been promulgated. This was an attempt to turn the hitherto independent French Church into an arm of the State. In effect, the Revolutionary government created an "established" church, with doctrine and liturgy to be determined by the State, just as England had done a few centuries previously under Henry VIII Tudor. The Revolutionary government also duplicated Henry VIII's debasement of the currency by printing large quantities of worthless paper money, resulting in devastating inflation.

An almost fatal blow, however, was the execution of Louis XVI. In the eyes of ordinary French subjects, particularly the country folk, the king represented the only defense they felt they had against the rapacity of the nobility, the distant bureaucracy, the tax collector, and even, as the living symbol of the people and the nation, the vicissitudes of nature.

The straw that broke the camel's back, however, was the edict announcing the first conscription for military service in foreign lands in the history of France. With the new Revolutionary government declaring war against everyone imaginable, there was a severe shortage of manpower as genuine volunteers failed to put in the expected appearance. The lottery was set for most of the towns in the Bocage for March 12, 1793. That gave the inhabitants two weeks to gather and discuss the implications of this final insult. One of the more lively issues was the fact that all government officials and members of the National Guard were exempt from the draft.

Spontaneous Counter-Revolution

When the day came for the drawing of lots, a crowd of about two-thousand peasants appeared in the market square of Saint-Florent-le-Vieil, a small town about forty kilometers from Nantes. Armed with sporting guns and other makeshift weapons (including the traditional scythes and pitchforks), they were led by a few artisans. Significantly, they openly displayed the white cockade, the royal symbol.

Just before the lottery began, someone fired a shot from the crowd and killed one of the speakers assembled to inspire the people with appropriate revolutionary fervor. The National Guard returned fire, killing four people and wounding ten times as many. Without hesitation, the crowd charged, shouting Vive le roi! ("Long live the king") and Vive les bon prêtres! ("Long live the good priests"). The revolutionary soldiers, who had only expected to cow timid peasants into the army as cannon fodder, were faced with a completely different situation. They turned tail and fled.

The spontaneity of the uprising is demonstrated by the fact that it was another two days before those who became the leaders finally joined what eventually began calling itself Le Armée Catholique et Royale, "The Catholic and Royal Army." The anger of the people against the Revolution is graphically demonstrated by the brief career of Jacques Cathelineau, an itinerant peddler, who on March 13, 1793 found himself in command of a group of twenty of his neighbors.

Setting out in revolt against the revolutionaries, he saw his platoon grow to a brigade, and then to a regiment. By the end of his first day as commander, Cathelineau had captured four towns, two cannon, defeated two detachments of National Guard, and secured half of the new "Department" of Maine-et-Loire. Years later, Napoleon Bonaparte would pay him the tribute of saying that Cathelineau had possessed the first and essential quality of a man of war: never resting either as victor or vanquished.

Over the next couple of months, Le Armée Catholique et Royale carried out a campaign crowned with astonishing success. Had their supply base consisted of something other than captured revolutionary material and makeshift weapons, and had they received any kind of foreign assistance, it is quite possible that the Revolution would have come to an end before October 1793. Louis XVII, or what was left of him (the Sans Culottes made special efforts to corrupt both his health and his morals), would have been crowned king. England, however, was at the time only vaguely aware of the rising in the Vendée, although they would supply most of the arms for the guerilla activity that was to follow — long after the possibility of real success had evaporated. The European powers assembled in coalition against the dangers represented by the Revolution heard only a few rumors, if that, about what was going on.

Typical of loyalist tactics was the assault on the town of Fontenay (not to be confused with Fontenoy) in May of 1793. After the initial attack failed with the loss of most of their ordinance, Cathelineau took over from the nobleman who had led the first assault. The former peddler carried the town in one hour with a force a large proportion of which was still armed with clubs and scythes. In addition to a large quantity of military stores, they also captured food, clothing and, especially, shoes.

The counter-revolutionary forces were by this time in rags and barefoot. The wooden sabots they habitually wore in the swampy country were completely unsuitable for a military campaign. Even so, one of the Revolutionary generals charged with suppressing the rebellion later excused his temporary failure by stating, "Those devils in wooden shoes fight better and shoot straighter than any of our troops." Of great economic (and numismatic) significance, they also captured a large quantity of revolutionary assignats.

Financing the Counter-Revolution

The single largest problem facing any guerrilla organization apart from purely military considerations is money. As demonstrated by the various issues of the Confederate raiders in the American Civil War and the U.S. troops who broke up into guerrilla bands in the Philippines after the fall of Bataan, one of the first things such an operation does is issue its own scrip to finance operations. This aspect of a campaign had so far been ignored or forgotten by Le Armée Catholique et Royale.

Even with the capture of the virtually worthless paper money of the revolution, the only plan they came up with at the time was to hold on to it. It was apparently not until August that someone had the idea of using the Revolutionary paper against the Revolution. They endorsed what probably amounted to about a million Livres of paper money in low denominations, Au nom du Roi bon pour [denomination] — "In the name of the King good for [amount]."

These were all handwritten and dated August 2, 1793, some months after the battle of Fontenay. The denominations are all in Livres and Sous. Such was the enormous quantity of assignats printed by the Republic that collectors can acquire the captured and re-endorsed notes for reasonable prices. Unlike the specifically Republican issues, however, uncirculated specimens appear to be unavailable. The notes were desperately needed for financing, and it was unlikely that any would be saved or stockpiled for future use. Possession of the notes might also have been dangerous as evidence of collaboration with traitors.

Depending on how one looks at it, there were either two or three issues of assignats issued by the Armée Catholique et Royale for its own use instead of employing recycled Republican issues. In November 1793, a full series of notes was issued for use by the counter-revolutionaries. While undated, the notes came in denominations of Five, 10, 25 50 and 100 Livres. The notes bear a vague resemblance to the Republican issues of mid-1792. A border composed of some simple geometrical designs and a legend lets the holder know that the note is an issue of the Armée Catholique et Royale and the denomination, e.g., "cinq livres."

The rest of the face of the notes consists of a handwritten series and identification number, and an authorizing signature, along with the legend, DE PAR LE ROI and Bon commerçable de [cinq] livres pour objets fourmis l'Armée, remboursable à la paix, "Good in commerce for military supplies, redeemable after the peace."

What may be another issue, also from November 1793, or a more elaborate note of the same issue because of the higher denomination, is a 500 Livre note bearing a portrait of the Dauphin, by this time considered Louis XVII by loyalists. The portrait was obviously copied from some keepsake bearing a royal portrait in miniature, as was popular until photography came of age.

The border of the note identifies the issuer as the Armée Catholique et Royale de Bretagne. The serial numbers and signatures are handwritten, but the promise has been changed to read, BON DE 500 LIVRES, Remboursable au Trésor Royal, "Good for 500 Livres, payable at the Royal Treasury." The denomination is repeated obliquely in each corner of the note, next to a fleur de lis. The rest of the border invokes the blessing of God on the cause: DIEU ET LE ROI, "God and the King."

A small and final issue of notes for small change was authorized in 1794, probably early in the year. There are only two denominations known, 10 and 15 Sous. Except for minor differences, these notes are nearly identical to those of the second issue. The notes, however, are extremely rare, probably due to the rapidly declining fortunes of the Catholic and Royal Army, by this time pretty much having an existence in name only.

A cautionary note is in order. As the forces of Revolution were having a great deal of trouble defeating their under-equipped and poorly supplied enemies, they apparently resorted to economic warfare as well. Large numbers of counterfeit assignats virtually identical to the genuine issues were printed and distributed to destroy whatever meager ability the Armée Catholique et Royale had to finance itself. These counterfeits were so widespread that there is no certain method of determining which notes are genuine, and which are false. This is similar to the insulting situation which existed during the latter days of the American Civil War, when Northern counterfeits of Southern currency were accepted throughout the Confederacy while authentic notes, poorly printed on low quality paper, were refused.

A Near-Run Thing

Meanwhile, in the summer of 1793, the campaign of the Catholic and Royal Army was reaching its high water mark. In June came the most crucial decision of the rising. Jacques Cathelineau had been elected commander in chief of the army. He was faced with deciding whether to march on Paris and attempt to free what remained of the Royal family, or to assault Nantes and forge an alliance with other counter-revolutionary forces in Brittany and other regions in the west. The western regions of France were to be perennial thorns in the side of the Revolution and, later, Napoleon. Having no way of knowing the real weakness of the Revolutionary government in Paris, Cathelineau made what seemed the best decision at the time: march on Nantes, take the city, and build a stronger force before attempting the capital.

It was the wrong decision. True, it was one that far more experienced commanders would have made. It is hard to blame a man who had had no inkling of military tactics and strategy four months before. Years later Napoleon commented,

If, profiting from their astonishing success, Charette [another commander] and Cathelineau had drawn together all their forces in order to march on the capital after the taking of Machecoul, the Republic would have been finished; nothing could have stopped the triumphant march of the Royal Army. The white flag would have flown over the towers of Notre Dame before it would have been possible for the armies of the Rhine to come to the aid of their government.

Obviously it would have been far better to adopt the French version of "On to Richmond," and take Paris at all cost. Considering the indefensible position of the capital city compared to fortified Nantes, and the numbers of sympathizers and those just tired of the new tyrants who had raised themselves up, this would have been the strategically superior move to make.

Even so, like Waterloo two decades later, the battle for Nantes was extraordinarily close, and very nearly a victory for the Armée Catholique et Royale. The city was heavily defended, and under the command of one of the more effective Revolutionary generals. The number of the defenders is estimated at 12,000 to Cathelineau's 10,000. This was not good. The defensive position is considered to multiply by several factors the strength of the available forces. Fortunately, the Revolutionary general was not with his force, still recovering from wounds suffered in the spring campaign. As a result, an attack early in the day by the defenders was not pressed home. This allowed the Royal Army a chance to regroup and push forward its own assault on the trenches and breastworks surrounding the city.

The assault plunged through the earthworks and forced the Revolutionary forces back to the city. The retreat was far from a rout, the defenders fighting the whole way. Breaking into the city, the Catholic and Royal Army fought its way to Viarme Square in the heart of the city. At that moment, Cathelineau fell with a musket ball in the lungs, a sentence of slow death in the days before modern surgery. The attack ground to a halt as word spread quickly through the attacking force that their general was dead, although he would actually linger on for another two weeks. The second in command took over after the attack had already petered out, and ordered a withdrawal.

From then on, the Vendean forces concentrated on attempting to hold on to the territory they held, and repelling the forces of Revolution as army after army was sent against them. Having lost the initiative, however, it was only a matter of time before the cause was lost entirely.

One final misfortune put the seal on the fate of the Armée Catholique et Royale. The coalition forces had finally forced the surrender of the city of Mainz and its ten thousand defenders. In accordance with custom, these soldiers were released upon giving their parole never to bear arms against the coalition. Unfortunately, the forces of the coalition did not include the Catholic and Royal Army. These battle-hardened troops and their brilliant commander, Jean-Baptiste Kléber (afterwards second in command to Napoleon during the Egyptian campaign, and the general who had made the comment about the "Devils in wooden shoes") were put to work suppressing the rebellion in the Vendée.

On October 17, 1793, Kléber out-fought and out-generaled the Armée Catholique et Royale in a battle in which most of the leaders of the counter-revolution were killed or put out of action. The next day a large part of the population of the Bocage, almost 100,000 men, women and children, began a march to northern France to escape the Revolutionary army. The counter-revolutionaries were holding about 6,000 prisoners. Many people thought they should be executed, but they were spared, and the Völkswanderung began.

In January 1794, General Turreau issued orders as commander in the Vendée to lay waste to the region and kill everything human that could be found. The final defeat of the Vendeans as an army had already come at Savenay on December 23, 1793. Although guerrilla activity continued, such measures were completely unnecessary except as an act of gratuitous terror. Sporadic resistance continued until 1796 when the last remaining leaders were captured and guillotined.

The Vendeans did not issue any coins, but other royalist groups issued a small series of Six Deniers and 30 Sols (Sous) in bronze in the name of Louis XVII. These saw little if any circulation. The obverse of the Half-Sol (Six Deniers) features the bust of the Dauphin surrounded by the legend, LOUIS XVII ROI DES FRANÇOIS ("Louis XVII, King of the Franks"), while the reverse displays Genius (usually described by Americans as an angel) under the legend, REGNE DE LA LOI, "Rule of Law." The 30 Sols also has a bust of Louis XVII on the obverse, but the reverse has a simple value within a wreath. Most authorities consider the pieces either souvenir issues or patterns for a possible restoration coinage.

With the failure of the Armée Catholique et Royale to continue effective resistance, the victory of the Revolution was secure. The subsequent rise of Napoleon was guaranteed, as was twenty years of war throughout Europe. Ironically, it was at Waterloo that the Vendeans assured victory to the Allied forces. With the Emperor lacking ten thousand men who had been sent to put down yet one more rebellion in the Bocage, the "near-run thing" went in favor of the Iron Duke, not the Corsican upstart.

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Out of the Depths, Part VI: The Life's Blood of Commerce

No government can long stand that does not promote industry, commerce, and agriculture. That would be as contradictory and self-defeating as a government that failed to protect people's natural rights to life, liberty, property, and the acquisition and development of virtue ("pursuit of happiness"). The means of production are the means of sustaining life and liberty. This renders both of these two premier rights effectively meaningless without an adequate ownership stake — private property — in whatever industry, commerce, or agriculture provides subsistence for people.

Nor do industry, commerce, and agriculture spring from out of nowhere. Production of marketable goods and services requires a sound and stable money supply and, in an economy with any pretensions to being advanced, a commercial banking system. All of these things run on trust. Trust is, in a very real sense, the essence of civilization, the glue that holds society together. As the 19th century economist and proponent of worker ownership, Charles Morrison, explained,

Confidence and credit are only moral elements in society; they may be said to be, to a great extent, mere matters of opinion; yet their importance in the production and distribution of wealth is so great, that the whole machinery of material production is kept at work, disordered, or paralysed, according as these principles act in a healthy manner, irregularly, or not at all. They are to our industrial community what the nervous system is to the body, a slight and sensitive substance in itself, but the indispensable cause of all the life and motion of the system. A great nation may possess in abundance all the means of producing wealth, — population, intelligence, capital, natural and artificial instruments of production; and yet, if credit and confidence should be from any cause destroyed, all these resources seem to have lost their virtue, and general distress prevails. Let confidence and credit be restored, and the whole system is immediately set in motion again, and in a very short time general prosperity returns. (Charles Morrison, An Essay on the Relations Between Labour and Capital. London: Longman, Brown, Green, and Longmans, 1854, 200.)

The Restoration of Credit

Once the wreckage of the Revolutionary government's paper money farce was cleared away, it seemed safe once again to engage in business and commerce. In 1796, almost immediately after the decree of July 16, a number of private banking institutions were established. The first of these was the Caisse des Comptes Courants — Bank of Current Accounts. The bank was capitalized with 5 million Francs. Banknotes totaling 20 million Francs were authorized in 500 and 1,000 Franc denominations, backed by the capitalization and 90-day bills of exchange discounted at 6%. (Conant, op. cit., 44.)

Like the Bank of England organized a century before, the Caisse des Comptes Courants was a bank established by bankers for bankers. Unlike the Bank of England, however, the Comptes Courants was not a State-supported monopoly. A year later, some businessmen felt slighted by what they believed to be favoritism being shown to certain classes of customer. They believed that they were being shut out of the system and unfairly denied banking accommodation. Consequently they organized and established the Caisse d' Escompte du Commerce, the "Bank of Commercial Discounts." The bank was established on November 24, 1797 for a period of three years. The enterprise was so successful, however, that it was renewed at the end of the original charter period for an indefinite term. There was no fixed capital, but each new subscriber (shareholder) put 10,000 Francs into the bank, half in coin, half in endorsed bank bills. (Ibid.)

With the example of the Escompte du Commerce before them, French retailers organized and established an institution for their convenience: the Comptoir Commercial, or "Commercial Bank." All three banks accepted each other's notes and bills. The economy began to improve, and, for once, note-issuing banks in France seemed to be on a solid footing, with the financial community doing a safe and thriving business. (Ibid.)

Coinage of the Revolution

While reliance on paper money backed only by the State's promise to pay almost finished off the Revolution, the new government did make some effort to provide hard currency in the form of gold and silver coin, even before the final collapse of the assignat/mandat system in 1796.

Paper money was plentiful, so consequently, in accordance with "Gresham's Law" ("bad money drives out good"), gold, silver, and even copper coinage became increasingly scarce. The first official revolutionary issue continued the same copper denominations as under the old royal coinage, but added some new silver denominations and discontinued others. A 15 and 30 Sols were new, but the old 24 Sols went by the board. There was a greatly reduced coinage of the Louis d'Or, and the Two Louis d'Or was discontinued. The important Ecu of Six Livres was continued with, surprisingly, an adequate mintage. This was presumably due to the fact that it was the workhorse of the silver coinage. It was therefore crucially important to keep it before the public as a symbol of the adequacy of the new government.

After the execution of Louis XVI, the royal image was removed and replaced with a tablet proclaiming the presumed new basis of government: LES HOMMES SONT EGAUX SEVANT LA LOI: "Everyone is equal under the law." This is somewhat ironic, considering that this legend replaced the visage of a king whose trial had resembled a kangaroo court. The redesigned coins were struck only in 1793.

Every man might be equal under the law in the new France, but the coinage was not. Copper coinage was severely restricted, as reflected in the high prices for today's collectors. The Liard was dropped, as was every silver denomination except the Ecu, which now, in a design suggestive of Abou Ben Adhem's angel, had "Genius Writing in the Book of the Law" on the obverse, with the denomination on the reverse. This motif was repeated on the extremely limited coinage of gold 24 Livres.

In view of their extreme scarcity, the gold and silver coins were probably issued more for symbolic reasons and to attempt to give people confidence in the currency than to provide commerce with the necessary tools. The attempt failed, and people hoarded the coins. This makes for a relatively affordable supply of the coins today — "affordable" being understood in terms of thousands instead of tens of thousands of dollars for acceptable specimens. Coin was so scarce that when the Irish revolutionary Theobald Wolfe Tone went to France and attempted to make a purchase with minted gold, it was refused on the grounds that it must be spurious. Even after the eventual demonetization of the paper money, it took many years to draw as much coin back into circulation as there had been in 1789.

The fourth issue of the Revolution was even more restricted than the previous one, being issued only in "L'An II" of the new calendar, consisting of the latter quarter of 1793 and the first three quarters of 1794 (approximately). In an attempt to eliminate everything having to do with le ancién régime, the calendar, along with the old government and the religion of most of the people, was officially abolished. In an effort to control even the way people thought, and to remove all references to "superstition," the new calendar took away the old, "unscientific" reckoning in months and weeks, and substituted ten months for the old twelve, and brought in ten-day decades for the old seven-day week. All years would henceforth be calculated as being so many years before the Revolution, or in the Revolutionary year "Two," for example.

There were only three denominations in this coinage of L'An II, a copper One and Two Sols, and the symbolically important crown-sized Ecu. The Ecu was issued in such limited quantities that even the epidemic hoarding could not preserve enough specimens for today's collectors. Obviously the finances of the Revolution were becoming progressively worse, and rapidly so.

Increasing Desperation

A complete reform of the currency was carried out in late 1794 — (pardonnez-moi!) in L'An 3 of the Revolution, but the reform only extended to the units, not to the problems underlying the whole system. As with many things Revolutionary, the emphasis was on meaningless externalities in the apparent belief that changing the form would change the substance. Politicians and academics still suffer from the illusion that if you call something by a new name it then becomes something new.

Henceforth the "unscientific" duodecimal system first implemented by Pepin and Charlemagne nearly a millennium before would be replaced with a decimal system. In this, however, the French were not the innovators, but copycats. The Russians were the first to go decimal, having implemented a system of 100 Kopecks to the Ruble some time before. The United States instituted a quasi-decimal system beginning a year earlier in 1792. Officially still in use, the quasi-decimal system divides the dollar into halves, quarters and tenths, instead of only hundredths, with the "mill," or 1/1000 of a dollar being the smallest division.

The first issue of the new coinage, the fifth revised coinage for the Revolution in less than five years, began in L'An 4 and went into L'An 5. It consisted exclusively of copper Five Centimes (which the reactionary people still insisted on calling "un Sou"), Decimes (10 Centimes) and Two Decimes (20 Centimes). This issue is notable only for the first appearance on a coin of "Marianne," France's beloved personification and one of the few symbols connected with the Revolution to avoid associated unpleasantness. The reverse of all denominations consists of a simple statement of value, the mintmark and, on the Decime and Two Decimes, a wreath.

Due to the need to provide small change for the new monetary system, the coinage of these pieces was relatively large, although still severely restricted in comparison to the previous royal issues. The vast majority of circulating media, of course, consisted of the ubiquitous assignats, now denominated in Francs instead of Livres.

A sixth and final Revolutionary coinage was undertaken in L'An 5. The size of the Five and 10 Centimes was increased, and the Two Decimes denomination was dropped. The designs are virtually the same as the immediately previous coinage. This issue is notable for the restriking of "old" Decimes as Five Centimes, and the countermarking of the Two Decimes to obliterate the "2" by replacing it with "UN."

There was to be no more coinage after L'An 9 until Napoleon staged his coup in L'An 11, or late 1802. Even then, the "First Consul for Life" (as he was named) concentrated on establishing a sound silver and gold currency. He left small change to la petite bourgeoisie and nations of shopkeepers.

Role Reversal

Just as the French Revolution overturned the basis of government on which the American Revolution was founded by turning the sovereignty of the individual into the sovereignty of the collective, the economic roles were reversed. In the United States, the government minted specie, while the private wildcat banks printed vast quantities of paper money. In France, the State generated enormous quantities of assignats, while private individuals, businesses and banks provided coinage of sorts. From the early days of the Revolution, the dilatory official coinage had been supplemented with privately issued tokens in copper, bronze, billon, and silver.

The issuance of these Monnaies de Confiance, "Secure Monies," seems to have begun on a large scale in 1791, just as the official coinage with the new Revolutionary designs was being inadequately implemented. Like the German and Austrian (and French) Notgeld a little over a century later, these tokens were issued by political entities such as Boyere and Brun, business firms (e.g., Monneron Brothers of Paris), as well as others that may be the product of enterprising individuals. After all, if the government could make so much money by printing up cheap assignats and spending them into circulation, why couldn't some virtuous Bon Homme provide a better product while taking a somewhat smaller profit?

By far the greatest producers of this parallel currency, however, were the new banks that sprang up, apparently everywhere. This makes sense, for if the official currency was worthless or nearly so, some reasonably sound substitute had to be found fast or commerce and industry would come to a complete halt. With such names as Caisse de Bonne Foy ("Bank of Good Faith"), Caisse Metallique ("Metal Bank" — obviously eschewing issues of paper at least in name), and Caisse Populaire ("People's Bank"), these issued tokens in various unusual denominations. This calls to mind the official token issues of the Banks of England and Ireland a short time later. Eighteen Deniers — 1-1/2 Sols — seems to have been the most popular denomination, but 1-1/4, Two, 2-1/2, Three, Five and 10 Sols were common also.

Most issues were in copper and bronze or, at best, billon, but some were in good silver. One business, Lefevre, Lesage et Campagnie of Paris, issued an entire series of Five, 10 and 20 Sols in good silver. This must have been a very successful venture, for there are a number of varieties in this series.

Private tokens in the United States or Great Britain would have fallen into the classifications of store cards, patriotic or, especially, political commentary. The French Revolutionary issues, however, are notable for the absence of political features. They are limited almost exclusively to generic patriotic themes and commercial advertising.

Nothing could demonstrate more graphically the atmosphere of fear engendered by the various Revolutionary governments, especially the infamous Committee of Public Safety, and the hollowness of the claim to have restored liberty, equality and fraternity. Anyone expressing an unpopular or incorrect opinion was liable to find himself guillotined for having the wrong attitude or exhibiting insufficient fervor in support of the Revolution. It was in this respect a remarkable achievement: The Revolution may have been the only time in history when his own countrymen prevented the ordinary Frenchmen from expressing his opinion.

Just as in the Notgeld series there are subgroupings of Kriegsgeld and Kriegsmünzen, so the French Revolutionary token issues had their Monnoye D'urgence, small issues of "Emergency Money." To make up for the dearth of official specie coinage, these are often in silver, and have denominations of Two, Five, Seven, 10 and 20 Sols.

Many of the tokens have legends stating that they can be redeemed in assignats, which was to say that they were effectively unredeemable. Who, after all, would exchange a token of bronze or silver for a worthless piece of government paper?

On the whole, the French Revolution was a pale imitation of the American Revolution as a result of distorting the basic principles. This is accurately reflected in the currency chaos engendered by the Revolutionary activity. Coinage and paper money of the Revolution were pale imitations of what constitute sound fiscal and monetary policy. The French Revolution demonstrates most graphically what can happen with inadequate or incorrect principles, even with the best intentions in the world.

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Out of the Depths, Part V: Ça Ira!

In 1989, the French government sponsored a great celebration in honor of the bicentennial of the French Revolution. Feelings about this in France were in marked contrast to the festivities surrounding the bicentennial of the American Revolution twelve years earlier. In the United States, virtually the only complaints concerned the expense and the commercialization of the event. Even the government against which the American Revolution had been directed had obviously forgotten old scores (and governments are notorious for never forgetting an injury, only benefits). The British Queen was an honored guest at the official national banquet, and who could forget actor Robert Morley's British Airways' ad campaign at the time: "Come home, America . . . all is forgiven."

The celebration of the French Revolution, on the other hand, inspired a great deal of acrimony among many people. Most of this had to do with the basis of the revolution. The American Revolution originated in a claim that the British government had become illegal through egregious transgressions against the natural law, particularly as it related to the rights of life, liberty and access to the means of acquiring and possessing property, and obtaining and securing happiness and safety.

The French Revolution was different. Even the Revolutionaries maintained, at first, that the king represented the legitimate government. Louis XVI was, as historians recall, executed for his personal acts, whether real or, as many people today believe, imagined. Not that it made any difference: the revolutionaries had granted poor Louis Capet personal immunity for all acts as king, public and private, in the constitution he had been forced to sign. (The general outline of events and many of the facts about the Revolution have been taken from Warren H. Carroll's The Guillotine and the Cross. Manassas, Virginia: Trinity Communications, 1986.)

Away We Go!

The French Revolution has been described as a series of social earthquakes. People who considered themselves republican radicals one day might find themselves redefined as monarchical reactionaries the next, all without having changed their opinions. A great many of those who voted to execute Louis XVI, for example, were themselves guillotined months later for presumably supporting the monarchy. Society fell into complete chaos. Nowhere was this reflected more accurately than in the coinage and currency of the Revolution.

When the Revolution began in mid-1789, France was deeply in debt from various wars, but the currency was still fairly sound. Adequate provision was made for commerce with coin supplemented by small numbers of banknotes in denominations ranging from 200 to 1,000 Livres to facilitate large transactions and float the State deficit. A bank of discount — Caisse d'Escompte du Commerce (The Bank of Commercial Discount) — established by a financial consortium in 1776 issued notes. The available credit was frequently resorted to by the State, and there were a number of irregularities associated with the bank's administration. With the coming of the Revolution, however, there was a growing discontent with leaving such control over money and credit in the hands of private interests. (Conant, op. cit., 40-43.)

A full range of coin denominations was minted, from the Liard (Three Deniers), 1/2 Sol (Six Deniers), Sol (Sous) and Two Sols in copper, silver coinage of Six, 12, 24 Sols and 1/2 and One Ecu, and a gold coinage consisting of 24 Livres (the Louis d'Or) and 48 Livres (Two Louis d'Or). The regal designs were continued unchanged immediately after the beginning of the Revolution, but in greatly reduced quantities. One of the most serious problems facing the new Revolutionary government was, in fact, the scarcity of money. (Moulton, Principles of Money and Banking, op. cit., 144.)

Much to the surprise of the Sans Culottes, the great houses and chateaux they sacked did not have vast quantities of gold and silver lying about. There were valuable art treasures and silver and gold plate, of course. There was, however, nothing near the amount of cash on hand and other portable wealth that popular fancy has always attributed to the coffers of the rich. While vague, the image of the riches held by the wealthy usually conjures up something along the lines of Scrooge McDuck's Money Bin. It would be astonishing, however, if even Bill Gates or Warren Buffett have any significant amount of cash immediately available. The greater amount of the accumulations of the wealthy has always been tied up in investments, whether in land, factories, or some kind of financial assets, such as securities or commercial paper.

In any event, supplies of precious metal ran low, and the tax base virtually disappeared. Naturally, while the new government was little concerned about the money and credit needs of businessmen and other such profiteers and criminals, it still needed funds to run the growing government. Where the royal government had let the country suffer from too much neglect, the Revolutionary government was intent upon regulating every aspect of the people's social, religious, and economic life. This required a huge expansion of government, and massive numbers of bureaucrats and other functionaries, as well as enormous amounts of cash.

Proposals were advanced to nationalize the Discount Bank, and so restrict the power over money and credit solely to the central government. This, however, would still leave the "capitalists" in charge of the operation. The decision was made to abolish what was effectively a privately owned central bank, and turn all power over money and credit to the State. The carrying argument was that, while paper money issued by private persons or under a despotism is dangerous, that difficulty is removed in a constitutionally governed people's republic "which takes care of its own notes, which determines their number and use." (Ibid., 145.)

Consequently, the bank was suppressed August 17, 1792. To replace the discount bank, the new government proposed to issue interest bearing "State bonds," payable at sight (i.e., on demand) to cover the government's deficits. Not surprisingly, no interest was ever paid, and the provision was dropped from subsequent issues. (Ibid.)

Existing national lands and the assets recently confiscated from the Catholic Church would provide the security for these issues. The face value of the first issue amounted to one fifth of the value of the confiscated lands. The assets were put in escrow, set aside in a "Designated Fund" called Le Caisse de l'Extraordinaire. That was the plan, anyway. Soon, however, just as the United States government "borrowed" money from the Social Security fund and replaced it with government bonds, the lands and other assets illegally alienated from their rightful owners were sold at sacrifice prices to raise immediate cash for the mounting deficits. This left the "bonds" without any backing other than the State's promise to pay.

This was similar to the way that Henry VIII Tudor of England received no lasting benefit from his confiscations of 800 years' worth of contributions to the English Church, held in trust as "the Patrimony of the Poor." Old Coppernose's "take" was frittered away in less than four years, a record unmatched until the French Revolution. (William Cobbett, A History of the Protestant Reformation in England and Ireland, 1827, §§ 169-170.)

Increase Spending to Reduce Deficits

Although opposed by Tallyrand, (Moulton, Principles of Money and Banking, op. cit., 145.) almost immediately the new government began printing money with wild abandon and spending it into circulation to cover its enormous deficits. The new paper money was not called currency or banknotes, of course. The John Law scheme was still within living memory, giving people distaste for the name, if not the fact of paper money. During the debates a new name was invented for the bonds in order to give the illusion that the State was not issuing paper money. The new issues were called "assignats," or, loosely, "promissory notes." The first issue was simply the older notes of the Discount Bank with an added legend, Promesse d'Assignat.

These particular notes were not printed in any great quantity, and are very scarce today. The other issues more than make up for any lack, however. Between December 1789 and January 1795, twenty-four separate issues of assignats were made, with sixty-four different notes, not counting varieties. Note that this figure includes only national issues, not territorial, provincial or local paper. The quantity was so huge that today's collector can obtain specimens of many of the notes for less than a dollar, and even an uncut sheet for less than $40 is not unheard of. There are some scarce items, of course, but a student or collector on a limited budget can readily assemble a representative collection of France's Revolutionary fiscal and monetary disaster.

Some denominations of assignats are as low as 10 Sols or Sous. This fractional currency was necessary because of rapidly declining coin mintages. The first redesigned issues rolled out of the mint in 1791, and featured the bust of Louis XVI on the obverse, but reverse designs of appropriate revolutionary symbols, usually the fasces and liberty cap, but in the higher denominations Genius writing in a book of law. Americans usually describe this last as an "angel."

Rising Discontent

A combination of bad harvests and inflationary paper money issues, along with some extraordinarily stupid government policies led to widespread discontent. Grain rioting was widespread in the northeast during the winter of 1791/92. In February the mayor of Étampes was lynched for refusing to order a decrease in the price of wheat, while three days of rioting rocked Dunkirk when the government attempted to export grain in order to generate badly needed hard currency.

Decline in the value of the paper money was rapid. Between June 1791 and March 1792 the silver Livre fell 20% against other currencies, while the assignats were down to 82% of face in November 1791, another 63% by the end of January 1792, and maintained a steady decline throughout the spring. By February of 1796, a note with the face value approximately equal to a U.S. "Double Eagle" ($20 gold piece, c. an ounce of gold) was worth about six cents in purchasing power, a decline of about 99.7%. Not unexpectedly,

In the spring of 1791 no one knew whether a piece of paper money, representing 100 francs, would, a month later, have a purchasing power of 100 francs, or 90 francs, or 80, or 60. The result was that capitalists declined to embark their means in business. Enterprise received a mortal blow. Demand for labor was still further diminished. The business of France dwindled into a mere living from hand to mouth. This state of things, too, while it bore heavily against the interests of the moneyed classes, was still more ruinous to those in more moderate, and most of all to those in straitened, circumstances. With the masses of the people the purchase of every article of supply became a speculation — a speculation in which the professional speculator had an immense advantage over the buyer. Says the most brilliant apologist for French Revolutionary statesmanship, "Commerce was dead; betting took its place." (Ibid., 146-147.)

In other words, once the creation of money was divorced completely from the present value of existing and future marketable goods and services, the economy not only stagnated, but to all intents and purposes disappeared. Whatever the laws might say, in spite of the platitudes the incorruptible Robbespierre might mouth, despite whatever end the government might have had in view, regardless of the change promised under the Revolutionary leaders, the new system encouraged gambling and speculation to the detriment of production.

In light of the worthlessness of the assignats, the Revolutionary government took the simple expedient of renaming them "mandats" ("Territorial Mandates"), calling in the assignats at an exchange rate of 30 to 1 . . . and printing the new notes at a rate almost equal to the old notes. (Ibid.) While these at first passed as high as 80% of their face value, the inflationary pressures were just too much for what was left of the productive capacity of the nation to resist. The mandats soon passed at less than 1/1000 of their face value. Even before the assignats could be retired, however,

It was evident that the end had come. Before the assignats were withdrawn, the Government resorted to various expedients to hold up their value by legislative decrees. The use of coin was prohibited; a maximum price in assignats was fixed for commodities by law; the purchase of specie was forbidden under penalty of imprisonment in irons for six years; and the sale of assignats below their nominal value was forbidden under penalty of imprisonment for twenty years in chains. Investment of capital in foreign countries was punishable with death. All these efforts were as futile as similar efforts had been in John Law's time. (Ibid., 147.)

The problem, of course, should be obvious. Under the illusion that production is a derivative of money instead of the other way around, the Revolutionary government created money as fast as it could. All this did was create more demands on a shrinking amount of goods. Consistent with the laws of supply and demand, as the amount of currency increased and the quantity of goods and services available for sale decreased, the price level rose rapidly.

This is the lesson that the United States has learned to its cost over the past couple of years. Financially speaking, sound and sustainable economic growth has at least three requirements. One, all new money creation must be based on the present value of existing and future marketable goods and services. Two, all new money created must be linked directly by private property to that same present value of existing and future marketable goods and services. Three, ownership of the means of production, whether capital, labor, or some combination thereof, must be broadly owned; there can be neither chattel slavery nor wage slavery if an economy is to achieve long-term stability, sustainability, and growth.

An economy can sometimes survive for a while, sometimes very well, if two of these three requirements are met. Eventually, however, the discontinuity will cause disruption of the social order. If none of the three are present, and the State simply takes over money creation for its own benefit, all that has been accomplished is a complicated and expensive redistribution of existing wealth and a tremendous increase in the power of the State.

It wasn't long before the mandats were just as unpopular as the assignats had been. Food supplies in Paris disappeared and the government was forced to make emergency distributions in order to quell the rioting. Finally, on July 16, 1796 (Conant, op. cit., 43), the government gave up trying to force people to accept paper money in any form other than at its real value. The Revolutionary government on that date issued a decree permitting people to transact business in any money they chose. As described by MacLeod,

No sooner was this great blow struck at the paper currency, of making it pass at its current value, than specie immediately reappeared in circulation. Immense hoards came forth from their hiding places goods and commodities of all sorts being very cheap from the anxiety of their owners to possess money, caused immense sums to be imported from foreign countries. The exchanges immediately turned in favour of France, and in a short time a metallic currency was permanently restored. And during all the terrific wars of Napoleon the metallic standard was always maintained at its full value. (MacLeod, op. cit., 258.)

And so another mismanaged political experiment that tried to circumvent basic principles of economics and finance came to an end.

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